Sanghvi Forging & Engg.Ltd., Baroda V. The Add.CIT>,Range-4, Baroda

ITA 2106/AHD/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5957 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 01-04-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 21-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Business expenditure; Corroborative evidences
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO. 2106 /AHD/2012 (ASSESSMENT Y EAR: 2008-09) SANGHVI FORGING AND ENGG. LTD. BARODA V/S THE ACIT, RANGE-4, BARODA (APPELLANT) (RESPONDENT) PAN: AADCS 2903E APPELLANT BY : SHRI S.N. SOPARKAR RESPONDENT BY : SHRI P.L. KUREEL, SR. D.R. ( )/ ORDER DATE OF HEARING : 01-04-2014 DATE OF PRONOUNCEMENT : 29 -04-2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF CIT(A)-III, BARODA DATED 16.07.2012 FOR A.Y. 2008-09. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE B USINESS OF MANUFACTURING AND MARKETING OF STAINLESS STEEL FORG ED AND MACHINED SUBTENDS, FORGED FLANGES ETC. IT FILED ITS RETURN O F INCOME FOR AY 2008-09 ON 30.9.2008 DECLARING TOTAL INCOME OF RS 2,69,62,9 40/-. THE CASE WAS ITA NO 2106 /AHD/2012 . A.Y. 2008- 09 2 SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S 143(3) VIDE ORDER DATED 21.12.2010 AND THE TOTAL INCOME WA S DETERMINED AT RS 2,88,53,673. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 16.7.2012 GR ANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US. THE GROUNDS RAISED BY THE ASSESSE E READS AS UNDER:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS OF THE APPELLANT'S CASE IN UPHOLDING THE DISALLOWANCE OF RS. 11,00,000 /- BEING MEMBERSHIP FEE ON THE ERRONEOUS PLEA THAT THE SUM PAID BY ASSESSEE IS A DONATION IN NATURE &. IT IS HELD THAT THE SAID EXPENDITURE IS NON BUSINE SS EXPENDITURE. THE APPELLANT MOST HUMBLY SUBMITS THAT ON THE FACTS AND CIRCUMSTANCES OF ITS CASE AND IN LAW NO SUCH DISALLOWANCE CAN BE MADE AS THE EXPENDITURE INCURRE D IS GENUINE AND IS WHOLLY FOR BUSINESS PURPOSE AND DULY SUPPORTED BY VOUCHERS/BILLS. IN VIEW THERE OF, THE APPELLANT MOST HUMBLY SUBMITS THAT THE ADDITIONS MADE BY THE LEARNED AO REQUIRES TO BE DELETED AND PRAYS THAT HON'BLE TRIBU NAL BE PLEASED TO HOLD SO NOW AND DELETE THE ADDITION. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND ON THE FACTS OF THE APPELLANT'S CASE IN CONFIRMING THE ADDITION TO THE VALUE OF CLOSING STOCK OF SCRAP MADE BY THE LD. AO OF RS. 5,79,669/- ON THE ERRONEOUS PLEA THAT THE APPEL LANT HAS UNDERVALUED IT. THE APPELLANT MOST HUMBLY SUBMITS THAT ON THE FACTS AND CIRCUMSTANCE OF ITS CASE AND IN LAW THE VALUATION OF SCRAP IS PROPER AND PRAYS THAT HON'BLE TRIBUNAL BE PLEASED TO HOLD SO NOW AND DELETE THE IMPUGNED ADDITION. 1 ST GROUND IS WITH RESPECT TO DISALLOWANCE OF MEMBERSH IP FEES: 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOT ICED THAT ASSESSEE HAD PAID RS 11 LACS TO JAIN INTERNATIONAL TRADE ORG ANIZATION (JITO) WHICH ASSESSEE CLAIMED TO HAVE BEEN MADE FOR DEVELO PMENT OF TRADE AND INDUSTRY AND FOR THE DEVELOPMENT OF BUSINESS. AO HO WEVER NOTED THAT JITO WAS A WORLDWIDE ORGANIZATION OF 'JAIN' BUSINES SMEN AND OTHERS, REFLECTING THE GLORY OF ETHICAL BUSINESS PRACTICES. AO WAS OF THE VIEW THAT ASSESSEE WAS NOT ABLE TO ESTABLISH ANY COMMERCIAL B ENEFITS ACHIEVED BY INCURRING THE EXPENDITURE AND THUS IT WAS NOT FOR T HE PURPOSE OF BUSINESS BUT WAS IN THE NATURE OF CHARITY. HE ACCORDINGLY H ELD THE AMOUNT PAID AS NON BUSINESS EXPENDITURE AND DISALLOWED THE SAME. A GGRIEVED BY THE ITA NO 2106 /AHD/2012 . A.Y. 2008- 09 3 ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT (A). CIT(A) UPHELD THE ORDER OF THE AO BY HOLDING AS UNDER:- 3.2 I HAVE CONSIDERED THE APPELLANT'S SUBMISSIONS AND THE AO'S OBSERVATIONS. THE APPELLANT HAS FILED SOME PRINT OUTS OF DETAILS GIVEN ON THE WEB SITE OF JITO AS ALSO THE LETTERS WRITTEN BY THE ORGANIZATI ON TO THE DIRECTOR OF THE APPELLANT. FROM THESE-DOCUME NTS, IT IS SEEN THAT THIS ORGANIZATION IS FOR BUSIN ESS MAN, INDUSTRIALIST AND PROFESSIONALS OF JAIN COMMUN ITY ONLY. ITS MEMBERSHIP IS LIMITED TO JAINS ONLY AND IT IS WORKING FOR PHILANTHROPIC ACTIVITIES IN E DUCATION, TRAINING, HEALTH CARE, GENERAL UP-LIFTMEN T AND YOUTH DEVELOPMENT FOR THIS COMMUNITY. IT HAS AL SO TAKEN THE INITIATIVE TO TRAIN STUDENTS FOR UPSC EXAMINATIONS. ONE OF ITS OBJECTIVE IT TO INTERLACE THE CONCERNS OF INDUSTRY WITH THE INHERENT JAIN VAL UES. THUS, THE AO'S OBSERVATION THAT THE PAYMENT MADE TO THIS ORGANIZATION IN THE NATURE OF DONATION IS CORRECT. HENCE THE AO'S ACTION OF DISALLOWING THIS EXPENDITURE IS UPHELD AND THIS GROUND OF APPEAL IS DISMISSED. 5. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS NOW I N APPEAL BEFORE US. BEFORE US, AT THE OUTSET, THE LD AR SUBMITTED THAT JITO IS NOT A RELIGIOUS ORGANIZATION BUT A TRADE ORGANIZATION OF INTERNATIO NAL LEVEL. HE SUBMITTED THAT MEMBERSHIP FEES PAID TO IT IS ALLOWABLE DEDUCT ION AND FOR WHICH HE RELIED ON VARIOUS DECISIONS HE FURTHER SUBMITTED TH AT WHILE DECIDING THE ISSUE AGAINST THE ASSESSEE. CIT(A) HAS NOT GIVEN AN Y FINDING ABOUT JITO BEING NOT TRADE ORGANIZATION. HE THEREFORE SUBMITTE D THAT THE MATTER BE REMITTED BACK TO THE FILE OF CIT(A) FOR HIS EXAMINA TION AND HE MAY BE DIRECTED TO GIVE A FINDING AS TO THE NATURE OF ORGA NIZATION AND THEREAFTER DECIDE THE ISSUE. THE ID DR ON THE OTHER HAND SUPPO RTED THE ORDER OF LOWER AUTHORITIES. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. BEFORE US, THE LD AR HAS SUBMITTED THAT JITO IS NOT A RELIGIOUS ORGANIZATION BUT A TRADE ORGANIZATION AND THE EXPEN SES IS FOR THE BUSINESS OF THE ASSESSEE. WE FIND THAT THERE IS NO FINDING O F CIT(A) ABOUT THE NATURE OF ORGANIZATION WITH RESPECT TO JITO AND THE REBY THE FEES PAID BY ASSESSEE IS NOT IN THE NATURE OF MEMBERSHIP FEES BU T IS IN THE NATURE OF DONATION OR CHARITY. WE THEREFORE FEEL THAT IN THE INTEREST OF JUSTICE THE ITA NO 2106 /AHD/2012 . A.Y. 2008- 09 4 MATTER NEEDS RE-EXAMINATION AND WE THEREFORE REMIT THE ISSUE TO THE FILE OF CIT(A) FOR FRESH EXAMINATION AT HIS END IN THE L IGHT OF THE SUBMISSIONS MADE BY THE ASSESSEE AND THE DECISIONS RELIED BY IT AND THEREAFTER DECIDE THE ISSUE AS PER LAW AND AFTER GIVING A REASONABLE OPPORTUNITY OF HEARING TO BOTH THE PARTIES. THUS THIS GROUND OF ASSESSEE I S ALLOWED FOR STATISTICAL PURPOSES. GROUND NO 2 IS WITH RESPECT TO ADDITION OF VALUE OF CLOSING STOCK: 7. DURING THE COURSE OF ASSESSMENT AO NOTICED THAT IN THE STOCK STATEMENT SUBMITTED TO THE BANK, ASSESSEE HAD SHOWN THE SCRAP AT RS 12,45,797/- WHEREAS IN THE BALANCE SHEET IT WAS SHOWN AT RS 6,6 6,128/- . AO ASKED THE ASSESSEE TO RECONCILE THE DIFFERENCE. AO NOTED THAT IN THE ABSENCE OF ANY QUANTITATIVE DETAILS OF ACTUAL SCRAP GENERATION , ITS UTILIZATION AND SALES, THE VALUE SHOWN BY THE ASSESSEE WAS WITHOUT SUPPORTING EVIDENCE. HE ACCORDINGLY ADDED THE DIFFERENCE OF RS 5,79,669 (RS 12,45,797 LESS 6,66,128) AS INCOME OF THE ASSESSEE. AGGRIEVED BY T HE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) U PHELD THE ORDER OF THE AO BY HOLDING AS UNDER:- 4.2 I HAVE CONSIDERED THE APPELLANT'S SUBMISSIONS AND THE AO'S OBSERVATIONS. THE APPELLANT HAD SHOWN RAW MATERIAL AT 140699 KGS. ON 28.3.2008. AFT ER THAT STATEMENT, NO IN THE RECONCILIATION QUANTITATIVE DETAILS OF THE RECEIPT, ISSUE FOR WIP AND ISSUE FOR SCRAP HAVE BEEN GIVEN. ONLY THE AMOUN TS IN RS. HAS BEEN PROVIDED. THE SCRAP AS ON 28.3.2008 WAS 4484 KGS. WHICH HAS BEEN INCREASED TO 9399.28 KGS. AS ON 31.3.2008. THUS WITHIN A PERIOD OF 3 DAYS, SCRAP GENERATION OF 4915.28 KGS. HAS BEEN SHOWN, BUT NO BASIS OR METHOD FOR THE SAME HAS BEEN SUBMITTED. IN THE ABSENCE OF QUANTITATIVE DETAILS, FOR THE PERIOD 28.3.2008 TO 31.3.2008, THE RECONCILIATION FILED BY THE APPELLANT IS NOT ACCEPTABLE. WHAT THE AO HAS DONE IS THAT HE HAS REJ ECTED THE DIMINUTION IN THE VALUE OF THE RAW MATERIAL ON ACCOUNT OF ALLEGED CONVERSION TO SCRAP DURING THIS PERIOD OF 3 DAYS AND HAS ACCORDINGLY VALUED A PART OF THE CLOSING STOCK CLAIMED BY THE A PPELLANT AS SCRAP ON 31.3.2008 AT COST OF THE RAW MATERIAL. SINCE THE APPELLANT HAS NOT BEEN ABLE TO EXPLAIN THE DISCREPANCIES BY GIVING THE QUANTITATIV E DETAILS BACKED BY DOCUMENTARY EVIDENCES, HENCE THE AO'S ACTION IS UP-HELD AND THIS GROUND OF APPEAL IS DISMISSED. ITA NO 2106 /AHD/2012 . A.Y. 2008- 09 5 8. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS NOW I N APPEAL BEFORE US. 9. BEFORE US, THE LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE THE AO AND C1T(A). HE FURTHER SUBMITTED THAT THE ASSESSEE HAD VALUED THE STOCK AT NET REALIZABLE VALUE AND THERE WAS NO DIFFERENCE IN QUANTITY AND THE DIFFERENCE WAS ONLY ON ACCOUNT OF VALUATION. HE FUR THER SUBMITTED THAT THE STOCK STATEMENT AS SUBMITTED TO THE BANK WAS AS ON 28.3.2011 AND THAT THE SCRAP APPEARING IN THE BALANCE SHEET AS ON 31.3 .2011 WAS SOLD IN THE NEXT FINANCIAL YEAR FOR RS 9,39,928/-. HE THUS SUBM ITTED THAT THE ADDITION MADE BY THE AO AND CONFIRMED BY CIT(A) BE DELETED. THE LD. D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF AO AND CIT(A) . 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. BEFORE US, THE LD. A.R HAS SUBMITTED THAT THE STOCK STATEMENT THAT WAS SUBMITTED TO THE BANK WAS AS ON 28.3.2011 WHEREAS A S PER THE BALANCE SHEET, THE FIGURES WERE AS ON 31.3.2011 RESULTING I NTO DIFFERENCE. IT HAS BEEN FURTHER SUBMITTED THAT THE SCRAP WHICH WAS SHO WN ON 31.3.2011 WAS SOLD BY THE ASSESSEE IN THE SUBSEQUENT YEAR. WE FIN D THAT THERE IS NO FINDING BY THE CIT(A) ABOUT THE SALE OF SCRAP BY TH E ASSESSEE IN THE SUBSEQUENT YEAR. WE FURTHER FIND THAT CIT(A) WHILE CONFIRMING THE ADDITION HAS NOTED THAT ASSESSEE HAS NOT SHOWN WITH DOCUMENTARY EVIDENCE THE GENERATION OF SCRAP OF 4915.28 KG IN 3 DAYS I.E. BETWEEN 28.3.2011 AND 31.3.2008 AND HAD NOT RECONCILED THE QUANTITATIVE DIFFERENCE. WE ARE THEREFORE OF THE VIEW THAT IN TH E INTEREST OF JUSTICE, ASSESSEE BE GRANTED ONE MORE OPPORTUNITY TO SUBSTAN TIATE ITS STAND BEFORE CIT(A) AND THEREFORE REMIT THE MATTER TO THE FILE O F CIT(A) TO RE-EXAMINE THE MATTER IN THE LIGHT OF THE SUBMISSIONS MADE BY THE ASSESSEE AND ITA NO 2106 /AHD/2012 . A.Y. 2008- 09 6 THEREAFTER DECIDE THE ISSUE AFRESH AFTER GIVING A R EASONABLE OPPORTUNITY OF HEARING TO BOTH THE PARTIES. THE ASSESSEE IS ALSO D IRECTED TO FURNISH ALL THE NECESSARY DETAILS CALLED FOR BY CIT(A) PROMPTLY SO AS TO ENABLE HIM TO DECIDE THE ISSUE. IN THE RESULT THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 29- 04 - 2014. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AH MEDABAD